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The rupee failed to hold onto its early gains and fell back to end at a fresh two-month low of 64.28 after the Reserve Bank sounded a more hawkish tone amid upside risks on inflation in Asia's third-largest economy.
The domestic currency finally settled the day with a modest 4 paise loss against the US dollar, extending its downtrend for the fifth straight session.
It initially touched a high of 64.02 before making downward movement.
The central bank in its 6th bi-monthly Monetary Policy review today kept the interest rate unchanged as widely expected but lowered economic growth projection to 6.6 per cent for 2017-18 from 6.7 per cent on higher inflation expectations.
Forex market experienced a renewed sense of confidence in early part as financial markets across the globe attempted to shake off the volatility and jitters witnessed in recent trading sessions following Wall Street's rebound overnight.
However, the initial euphoria soon gave way to doubts and a sell-off on local bourses which was initially triggered by a recovery in Asian equities.
Earlier, the Indian currency opened higher at 64.12 as compared to Tuesday's close of 64.24 at the Interbank Foreign Exchange (forex) market on fresh bouts of dollar selling by exporters and banks.
It later strengthened to hit a high of 64.02 in mid- morning deals as bullish momentum in equity markets kept leading the way for the local unit.
However, reacting to post-RBI policy review, the rupee retreated sharply to touch a low of 64.31 towards to tail-end trade before ending at 64.28, showing a loss 4 paise, or 0.06 per cent.
On the international energy front, global crude traded little changed after a brief overnight recovery, as a sharp drop in US crude inventories last week was offset by soaring soaring US output.
The oil price has fallen by 3.2 per cent in the last week.
Brent crude futures were trading lower at $66.70 a barrel in early Asian trading.
The RBI meanwhile fixed the reference rate for the dollar at 64.1377 and for the euro at 79.4345.
Globally, the US dollar traded little changed against other major currencies ahead of Fed speakers later in the day.
The dollar index, which measures the greenback's value against a basket of six major currencies, was up at 89.69 in early trade.
In cross-currency trades, the rupee continued its rising trend against the pound sterling to finish at 89.23 per pound from 89.60 and hardened against the euro to end at 79.35 as compared to 79.68 earlier.
The home unit also recovered against the Japanese yen to close at 58.88 per yens from 58.95.
Elsewhere, the common currency euro failed to hold on to its overnight recovery move from near 2-week lows and fell back to trade lower against the US dollar despite news of a coalition government deal between German Chancellor Angela Merkel's conservatives and the Social Democrats (SPD).
The British pound remained under intense pressure on the back of disappointing macro data outcome.
In forward market today, premium for dollar declined due to mild receiving from exporters.
The benchmark six-month forward premium payable in July moved down to 139-141 paise from 142-143 paise and the far- forward January 2019 contract also edged lower to 278-280 paise from 281-283 paise previously.